Which one of the following four statements presents a challenge of using external loss databases in the
operational risk framework?

Which one of the four following statements regarding foreign exchange (FX) swap transactions is
INCORRECT?

To quantify the aggregate average loss for the credit portfolio and its possible constituent subportfolios, a
credit portfolio manager should use the following metric:

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year
no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate
spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both
interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment.
What may happen to the Delta's initial credit parameter and the value of its loan if the machinery industry
experiences adverse structural changes?

In early March, an energy trader takes a long position in natural gas futures for delivery in June, and hedges
this exposure by taking a position in futures for July delivery. These trades were executed on the expectation
that over time, the relative prices of the June and July contracts will come into alignment, the movement in
these two contracts will largely mirror each other, and as a result of this, the net exposure is minimized and the
position is protected against absolute price movements. However, if the two relative prices do not come into
alignment with each other due to the scarcity of any of the two traded contracts in the futures market, the
trader is likely to become exposed to the